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Fin 402 Week 4 Individual Assignment Risk

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Risk and Return Tradeoff Memo

Analyzing the risk and return tradeoffs associated with Casa Bonita’s portfolio Diversity is an important part of any portfolio; diversity in the industries chosen for investment and in the level of risk undertaken are the two most important factors when considering how to construct a corporate investment portfolio.(3) Casa Bonita is a growing company and it is important that we invest our capital wisely if we are planning to use the gains to fund expansion and corporate growth. As corporate officers we have a duty to our employees, our customers, and the corporate community to be measured and knowledgeable about every investment decision we make. Investment decisions should almost be methodical, however due to the nature of the stock market it is hard to be methodical as there is a certain level of predictability that must be present for us to become methodical in our investment decision making.

Decisions made during the simulation
As the Treasury Analyst for Casa Bonita during the simulation it was my job to build the corporate investment portfolio in a manner that would produce the largest amount of returns while taking the minimum amount of risk. Initially the market conditions were great with multiple stocks expected to perform above average, however it was still important to include stocks that would perform well even in an economic downturn in our portfolio. The inclusion of “recession proof” securities provides stability, or a foundation for our company to build off of, having that launch pad is very important for long term investing. (2) We are planning for Casa Bonita to be around for a long time, and even going public one day. When the time comes and we have to disclose the contents of our investment portfolio our company will be more attractive to potential investors if our investment portfolio is diversified.

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